PHOs fall short of expectations. Despite failings, networks may have role as a transition to vertical integration.

An estimated 3,000 physician-hospital organizations have formed since the early 1980s, most of them in the last two years. But their slow progress in managed-care contracting has many wondering if they're anything more than an expensive fad. Proponents argue that despite their failings, PHOs may have a role as a transition to vertical integration.